Saturday, January 25, 2014

Stock Bought: WMT

I made three purchases during this past week. My first purchase occurred on Tuesday, when I bought shares of Wal-Mart Stores (WMT), the largest retailer in the world by revenue. My most recent previous purchase of WMT was in October 2013 and I wrote an article about it for Seeking Alpha at that time.

I think WMT is fairly valued to slightly undervalued at the current price. It has a P/E of 14.5 (vs. a 5-year historical average of 14.5), P/S of 0.5 (vs. 0.5), P/B of 3.3 (vs. 3.1), and dividend yield of 2.5% (vs. 2.1%). Using a Dividend Discount Model with a dividend growth rate of 10% (lower than the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $83.16. Morningstar gives a fair value of $80.00 and a 4-star rating. The average of those two estimates is $81.58, which implies a 7.3% margin of safety at my purchase price.

I bought 20 shares of WMT at the price of $75.60 per share plus commission, giving me a 2.48% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.40 from this purchase, which will add a total of $37.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 45 shares of WMT and I will receive combined quarterly dividends of $21.15. My forward 12-month dividend total increases to $4,071.

SB: I agree, WMT is at or below fair value right now, making it a reasonably attractive investment. This purchase helps bring my WMT position close in weight to my TGT position, giving me some balance in the retail area.

Disclaimer

I am not an investment professional or a licensed financial advisor. I am a self-educated investor and the contents of this blog reflect my personal investing strategy, thoughts, and decisions, which may not be appropriate for other investors. My investing decisions do not constitute recommendations or advice. You should consult with an investment professional before making any investing decisions. I am not responsible or liable for any of your investing decisions or the outcomes of your decisions, including but not limited to those that may result in monetary loss or emotional distress. I am not responsible for any of the comments posted by readers or the contents of any linked websites. This blog is for educational purposes only.